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February 17, 2005

Washington Health Policy Week in Review Archive e6edc4eb-d0f0-4396-a69c-0507b921fb37

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Bush on Drug Cost Flap: Fix Medicare "Unfunded Liability" After Social Security

February 9, 2005—President Bush on Wednesday said the long-term solvency of Medicare was on his second-term agenda, but not until his plan for overhauling Social Security becomes a reality.

Bush said Medicare's costs would have to be addressed, especially following a new administration estimate that the program's prescription drug benefit would cost $720 billion over 10 years. "There is an unfunded liability inherent in Medicare that Congress and the administration's going to have to deal with over time," Bush said.

The $720 billion figure dwarfed previous estimates, causing a flare-up in the press and on Capitol Hill. Yet Bush gave no sign of trying to scale back the drug benefit, saying that changes to Medicare will, in the long run, have "cost savings for our society."

A reported estimate that the drug benefit may cost $1.2 trillion over 10 years is off "by about one-half a trillion dollars" said White House adviser Doug Badger, who added that the administration's cost estimates have been increased by only 1 percent since the benefit (PL 108-173) was enacted.

Badger was not clear on whether the administration would consider cuts in Medicare provider payments to reduce costs, but emphasized that the White House continues to work on a plan to halve the deficit with Senate Budget Committee Chairman Judd Gregg, R-N.H.

A year ago, the administration pegged the cost of the Medicare overhaul law at $534 billion from 2004–2013. Of that figure, $511 billion was the cost of the drug benefit. Badger said the administration's new estimate of the drug benefit's cost in that period is about the same—$518 billion.

The full Medicare drug benefit starts in 2006, which means the 2004–2013 estimate included only eight years of the benefit's full costs. Estimates for those eight years essentially haven't changed, administration officials said. Measuring the benefit's cost over its first full 10 years brings the figure to $720 billion because the new figure includes costs through 2015.

The $1.2 trillion estimate, provided by Medicare's actuary, fails to subtract factors such as beneficiary premium payments and reduced federal Medicaid costs associated with implementing the drug benefit, the administration says.

A Democratic estimate, compiled by the minority staff of the House Ways and Means Committee, puts the net cost of the benefit at $913 billion from 2006–2015. The discrepancy relates to data differences over savings on federal Medicaid costs.

"More than anything, this is an opportunity to make the case to require price negotiation and other efforts to aggressively lower drug prices," the Democratic staff memo emphasized.

Gregg accepted an explanation Wednesday by White House budget chief Joshua B. Bolten that the administration figures haven't changed and were higher because of apples-to-oranges comparisons.

But Gregg and House Budget Chairman Jim Nussle, R-Iowa, said Tuesday they intend to use the fiscal 2006 budget resolution to order spending reductions in entitlement programs including Medicare and Medicaid.

House Ways and Means Health Subcommittee Chairwoman Nancy Johnson, R-Conn., said the numbers flap will "undoubtedly" increase pressure and spark discussion in Congress over cutting provider payments.

Johnson said she doesn't like the new estimates but believes the current course is the correct one because the law will make Medicare more efficient by providing for more organized care, including preventive treatments like pharmaceuticals, and reducing costs per patient over time.

Fellow House Republicans who are upset about the new estimates are not seeing it in the proper context, Johnson said, referring to more efficient forms of care. "We are doing the right thing," she said.

Democrats jumped on the issue to argue both for giving Medicare power to negotiate lower drug prices and to allow wider importation of cheaper drugs from Canada and other nations.

Sen. Edward Kennedy, D-Mass., said the new estimate "makes action on drug importation even more urgent. The problem is not caused by its being too generous toward seniors. In fact, it is not generous enough. Too much of the cost of the program goes to increase the drug industry's already inflated profits."

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HHS Details Medicaid Cuts Adding $91 Billion in New Estimate of Baseline Savings

February 7, 2005—Bush administration officials now say they expect federal Medicaid spending savings to be $91 billion over 10 years, a significant savings increase from an earlier estimate. This revised figure is independent of the changes officials aim to make in a planned Medicaid overhaul.

Last Friday, officials gave a figure of $73 billion as their estimate for lower projected spending. Later that day officials alerted reporters to the higher savings estimate based on fiscal years 2006 through 2015 while the earlier number was based on 2005 to 2014.

The revised estimate of the 10-year federal Medicaid spending may make it harder for the administration to convince Congress to alter Medicaid law to trim an additional $60 billion through policy changes.

Administration officials said states will be unable to absorb the projected average annual increases of 7 percent for Medicaid spending. On that point, HHS Secretary Michael O. Leavitt said at a Monday press briefing to unveil the administration's HHS budget proposal that states now spend more on Medicaid than education.

Officials are only offering details on how they propose to generate the $60 billion in savings, while sticking to generalities in talking "flexibility," the other major element of their Medicaid overhaul plan. That element would grant states the authority to be more flexible with spending on their "optional" Medicaid populations. Optional coverage populations include women and children in households with incomes that while low, are too high to be part of the mandatory populations state Medicaid programs must cover. Optional populations also include nursing home residents and disabled people.

Centers for Medicare and Medicaid Services Administrator Mark McClellan said repeatedly Monday that flexibility would not entail trimming federal outlays for optional populations in coming years.

"We're just trying to get more people covered with the same amount of money," he said in a Monday press briefing.

"A modernized Medicaid system will give states greater flexibility without the need for burdensome waiver applications," the HHS document "Budget in Brief" said.

HHS officials spoke in their budget proposal of remolding Medicaid for optional populations along the lines of the State Children's Health Insurance Program, which allots specific sums of money to be paid out each year to SCHIP programs.

As an entitlement, Medicaid, in contrast, now bases funding for both optional and mandatory populations on whatever it costs to deliver a fixed benefits package to all qualified Medicaid enrollees.

It's unclear how a switch to allotments for optionals would be set and how a fall-off in the current rate of federal spending would be prevented.

Thus it's unclear whether federal Medicaid spending reductions would be limited to policy changes to generate the $60 billion in savings and those expected from the lowered spending forecast.

"Principles that are employed in SCHIP and emphasize innovation will be expanded to Medicaid beneficiaries, while long-term reforms will build on successful programs that use consumer direction and home- and community-based care to improve satisfaction and lower costs," the document added.

McClellan said the administration will prepare a legislative proposal to overhaul Medicaid after completing an "intensive dialogue" with state governors and others. "We want to get this done this year," he said.

Policy-Related Changes
HHS detailed the "accounting gimmicks" they intend to eliminate to generate about $40 billion of the $60 billion in policy-related changes.

HHS would save $11.9 billion by restricting payments between state and local governments and health care facilities in a way that draws down federal funding exceeding the percentage of Medicaid funding the feds usually pay.

Barring states from making Medicaid payments greater than the actual costs of care, another controversial tactic for drawing down federal funds, would save $3.3 billion.

Limiting state taxes assessed on providers to generate extra federal Medicaid money would save $6.2 billion.

A similar proposal relating to limiting state taxes on managed care plans would save $1.4 billion. Restricting which services could be claimed as "targeted case management" would save $7.7 billion. Establishing allotments for how much states could claim in administrative expenses to run Medicaid programs would save $6 billion.

Approximately $15 billion in reductions derives from changing the way pharmacies are paid for filling Medicaid prescriptions.

New curbs to prevent people from transferring assets to qualify for Medicaid would save $4.5 billion. This would entail ending the federal ban on the expansion of long-term care insurance policies that allow buyers to keep part of their assets when qualifying for Medicaid.

The administration's budget proposal calls for taking part of the $60 billion in savings and using it to fund expanded access to care. Thus net savings from policy changes would total $45 billion over 10 years after subtracting the $15 billion cost of the expanded access programs.

HHS estimates that combined federal and state spending on Medicaid in 2006 will total $338 billion, of which $193 billion will come from the federal government.

The budget also would fulfill the administration's multi-year effort to create a total 1,200 new or expanded community health centers by 2006. Funding added in 2006 would pay for another 570 new or expanded sites. The budget allots $26 million to establish 40 of the new centers in high-poverty counties.

The changes announced Monday drew sharp criticism from hospitals, consumer advocates, and Democrats on Capitol Hill.

"The true test of any reform will be whether it improves the lives of those who depend on this program—the children and elderly who can't care for themselves," said American Hospital Association President Dick Davidson.

"Medicaid cuts of the magnitude of $60 billion over 10 years could potentially devastate critical pediatric services" needed by both low-income and privately insured children, said Lawrence A. McAndrews, CEO of the National Association of Children's Hospitals.

The liberal advocacy group Families USA said that because of the cuts, "many seniors, children, and the sickest people in Medicaid will be devastated by a loss of health coverage."

"What will happen to our infrastructure of care for seniors and disabled if Medicaid can no longer serve them?" asked Sen. Max Baucus, D, Mont. "Cuts of this magnitude would have a dramatic impact wherever they are made," he said.

Baucus voiced alarm about proposed limits on state administrative spending. He said it sets a "dangerous precedent" and would harm efforts to improve efficiency and add information technology to Medicaid while further burdening states who have new responsibilities to implement the Medicare overhaul law (PL 108-173).

Baucus also criticized a proposal to eliminate the Rural Hospital Flexibility Program, which helps establish provider networks in rural areas and assists facilities in underserved areas in qualifying for higher Medicare payments.

The National Governors Association, whose support is key to Medicaid changes, said it looked forward to working with the administration on the reform effort.

It urged efficiencies "and other policies that can save both the states and federal government money, as opposed to shifting costs to the states through budget cuts, caps or other mechanisms." The overhaul effort needs to "redefine the federal-state role in a way that makes the states' financial commitment sustainable over the long run," NGA said.

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Joint Commission Panel Recommends Changes to Medical Liability System

February 10, 2005—As lawmakers introduced legislation Thursday that would overhaul the nation's medical malpractice system, a panel of medical experts urged both immediate and long-term system changes they said would improve patient safety.

The medical liability system "chills the identification and reporting of adverse events in health care" which in turn "undermines opportunities for learning" that could make the medical system safer, according to a new report from the Joint Commission on Accreditation of Health Care Organizations.

The report urges health care providers and practitioners to increase attention to patient safety and medical injury prevention and to improve communication between patients and practitioners. A medical liability system redesign also should provide compensation for injured patients while encouraging health care providers and practitioners to report their errors, learn from their mistakes, and take action so the same errors do not occur again.

"Our current medical liability system has built a wall of silence" that discourages medical personnel from discussing their mistakes with each other and with their patients, said Dr. Eric B. Larson, director of the Center for Health Studies at the Group Health Cooperative in Seattle.

Larson is one of 29 experts who helped write the commission's report, which contains 19 specific recommendations, including:

  • Strengthen oversight and accountability mechanisms to better ensure the competencies of physicians.
  • Allow health care researchers access to open liability claims to permit early identification of problematic trends in clinical care.
  • Encourage appropriate adherence to clinical guidelines to improve quality and reduce liability risk.
  • Create an Office of Health Care Quality in the Department of Health and Human Services to set national priorities for improving patient safety and health care quality.
  • Pursue "pay for performance" strategies that would provide incentives to focus on improvements in patient safety and health care quality.
Read the full report at

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Minority Health Disparities: Redemption Through Data?

February 10, 2005—"Of all the forms of inequality, injustice in health care is the most inhumane," Democratic delegate to Congress Donna M. Christensen said when addressing a press briefing Tuesday on minority health care disparities, quoting Martin Luther King, Jr. There is no reason why African American men should live nine years less than white men, that African American women should live six years less than white women, or that African -American babies should die twice as often during infancy, she said.

To help end those disparities in health status, Christensen, an up-and-comer in the Democratic caucus who represents the Virgin Islands, is linking together with former House Speaker Newt Gingrich, former House Republican James Greenwood, and former House Democrat Peter Deutsch, to make the case that detailed data on the nature of disparities and the zip codes in congressional districts in which they are concentrated will help erase the gap.

The new Congressional Leadership Alliance, a partnership between elected officials, drug companies, minority doctors, and consumers, plans to announce "health disparity zones" a few months from now in eight congressional districts.

Project designers envision the eight districts as a pilot for what can be done elsewhere in the country. Deutsch said he's convinced the disparity numbers can be changed in those areas, and once that happens, he hopes Congress will force action on a wider scale.

Targeting the problem by zip codes "really allows you to identify health needs in a practical, actionable way," said Gingrich. The eventual goal is to have each congressional district in the country meet national averages on health status and to move those national averages up, said Gingrich.

The National Minority Health Month Foundation defines a disparity zone as "a disproportionate incidence of [chronic] diseases and conditions occurs in the elderly, and in racial and ethnic minority groups."

"These patients often reside in health disparity zones—contiguous ZIP codes characterized by a disproportionate prevalence of diseases and conditions that can be linked to higher death rates, greater hospitalization rates, and cost."

As an example, the group used a color map to illustrate disparities in the 5th Congressional district in Atlanta, represented by Rep. John Lewis, D-Ga.

"The rate of premature morbidity due to cardiovascular disease is almost 400 percent higher in the red area—a cluster of 19 zip codes—versus the green area on the map," the foundation said. "These populations experience not only a disproportionate share of the morbidity and mortality associated with these conditions, but also a resulting disproportionate share of the social and economic costs."

The alliance was vague about how it would tackle disparities once they are identified, saying it would draw on the resources of its various members and rely on "evidence-based" treatment practices.

Asked where actual dollars would come from, Gingrich pointed to Medicaid and public health dollars already in the system. Health officials would eagerly target these funds if they knew precisely where they could get the biggest impact for their money in closing wide disparities, he suggested. The foundation said it already has data on disparities for each of the congressional districts in the country. Among the sources of the data are the Centers for Disease Control and Prevention and various state and local agencies, a spokeswoman said.

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Reinsurance Pools: The Bipartisanship May Be Refreshing, But Whose Bucks Will Fill Them Up?

February 8, 2005—Among the few health coverage ideas on which Democrats and Republicans seem to agree is creating a reinsurance system to lower premium costs in the hotbed of the uninsured, the small employer market.

On the left, Sen. John Kerry, D-Mass, made reinsurance a key element of his health overhaul plan in last year's presidential campaign. On the right, Majority Leader Bill Frist, R-Tenn., endorsed a similar idea in the Senate and Nancy L. Johnson, R-Conn., chair of the Ways and Means Health Subcommittee, has expressed interest in offering legislation in the House.

There's some key industry support too; the National Association of Health Underwriters, which represents insurance agents, is pitching the idea. But because federal money figures into some proposals, pools may no go nowhere this year.

GOP thinking these days in Congress about how to cover more people centers on restructuring insurance, whether through health savings accounts or slimming down benefits for much of the Medicaid population to free up money to cover other uninsured people.

"We really cannot spend our way to covering everybody with affordable insurance," Heritage Foundation Vice President Stuart Butler said Tuesday in remarks to a conference sponsored by the National Association of Health Underwriters (NAHU).

But new forms of pooling people are one way to restructure the purchase of insurance and reinsurance—insuring health insurers for their unusually expensive enrollees—is an important dimension of that, Butler said.

Reinsurance allows insurers to offer coverage to high-cost people who otherwise would drive up premiums for those who are low or medium risks, he said.

One way to financially assist insurers with high-cost cases is through federal funding of a reinsurance mechanism, as in the Kerry plan. Kerry would have had the federal government pay a high percentage of that portion of treatment costs exceeding $50,000 for an episode of care. Kerry estimated that his plan would lower premium costs by 10 percent.

But Kerry's approach creates "enormous" incentives for insurers to shift risk to the government rather than think of ways to manage that risk, Butler said.

And if the federal government ends up paying for a growing number of high-cost cases, then it will respond by rationing care or fixing prices, said Butler, a conservative who opposes the Kerry approach.

Instead, Butler said a better approach would involve a federal-state partnership in which different approaches to reinsurance could be tested. A NAHU official said that while the federal government could be the source of money for reinsurance, it could be funneled to state reinsurance pools, which would have independent boards in charge rather than the federal government.

This approach "would not create a new government-run bureaucracy," a NAHU position paper says. "The government would subsidize reinsurance premiums, but not become the reinsurer itself. It would bolster the private system, and make coverage more affordable for all small employers."

Although there are now 19 active reinsurance pools, they are funded by premiums paid by the participating insurers. But they are too small to deliver significant savings to the insurers, NAHU said. Federal money would allow greater savings and spur the creation of more state pools.

But how much federal money? Another NAHU official suggested that the cost could be in the tens of billions but certainly not as high as $100 billion. And the payoff could be big for small employers—premium savings of up to 20-to-30 percent, she said. But given the huge federal deficit, it's not clear that GOP leadership is going to be proposing a significant federal investment, despite the interest of key House leaders like Johnson.

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Senators Urge Commission to Study Medicaid

February 9, 2005—Giving experts a year to study the federal Medicaid program and recommend ways to improve it would give lawmakers the political cover needed to approve a major overhaul to the joint federal-state health program for the poor, two senators said Wednesday.

Senators Gordon H. Smith, R-Ore., and Jeff Bingaman, D-N.M., said Congress should have a commission analyze what works in the program and what does not before making any spending cuts or structural changes to Medicaid.

Administration officials and the chairmen of the House and Senate budget committees have targeted Medicaid for spending reductions as a way to help reduce the budget deficit.

But allowing a commission to review all the options first would "provide the political cover and the legislative leverage" for lawmakers who are eager to change the program, Smith said.

Legislation that Smith and Bingaman are co-sponsoring would establish a 23-member commission with members appointed by the president, Congress, governors and state and local officials. The panel would hold public hearings and issue a report with recommendations on how to improve Medicaid, which is estimated to cost the government more than $300 billion in 2005.

More than 50 million people receive care through Medicaid, including low-income seniors, people with disabilities, children and pregnant women.

While Medicaid costs are increasing, they are rising at a slower per capita rate than either Medicare or private sector health care costs, according to documents that Smith and Bingaman distributed at a news conference to announce their legislation.

The key driver behind rising Medicaid costs is higher enrollment, they said. "When nearly 5 million people lost employer coverage between 2000 and 2003, Medicaid added nearly 6 million to its program. Costs rose in Medicaid precisely because the program is working—and working well—as our nation's safety net program," Bingaman said.

Twelve senators, including Senate Republican Conference Chairman Rick Santorum of Pennsylvania, are co-sponsoring the bill, and Rep. Heather A. Wilson, R-N.M., will introduce companion legislation in the House.

While overhauling Medicaid is important, "it's better to do it right than to do it fast," Smith said.

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